Governments don’t recognise cryptocurrencies as legal tender, but government-run tax agencies want some of the profits you make from it anyway.

If you haven’t noticed already, when money is involved, it’s one rule for them – and one rule for them. The public doesn’t get to make the rules.

We vote for other people to make decisions for us. That’s democracy for you!

What Are The Bitcoin Taxes In Europe And America?

Taxes are not payable in every country.

Even some EU countries are off the hook at the moment – although when you hear state officials uttering things like “controlling the currency and taxes” it probably won’t stay that way for long.

In Europe, Bitcoin is not subject to tax. However, that could change once an EU-wide agreement is reached. Germany and France are spearheading the talks. The rest will follow because they don’t have any choice.

HMRC has already decided BTC is an “asset” and is therefore subject to income tax or capital gains tax depending on your circumstances. At one point, BTC was even subject to VAT until HM Treasury realised that was a ridiculous idea.

The amount of tax payable depends on your income – so anything from 20% to 50%.

Investors can also reduce taxable earnings on cryptocurrencies by paying a “gift” to your wife, husband or children, or offering a donation to charity.

Bitcoin owners in the US get stung for capital gains tax too – either short-term capital gain or long-term capital gain rate. Short-term is classed as anything less than a year and is a cash cow for the tax man – investors get milked.

Short-term rates are fleeced from the same tax bracket as your annual salary. The less expensive option is to hold on to your investment for over a year.

Tax is then payable at rates of 0% if below $600, otherwise at 15% or 20% depending on your income.

US President, Donald Trump recently signed new laws that made excludes cryptocurrencies from 1031 exchanges.

These tax loopholes are basically for rich people that want to swap “property” such as a yacht for a villa on the beach. The “I’ll scratch your back tax break” rule does not apply to Bitcoin.

What Are The Banking Regulations On Bitcoin?

Opinion about cryptocurrencies amongst the world’s top bankers is divided.

Mark Carney, the Bank of England chief has cited cryptocurrencies as a “revolution”. The Vice President of Europe’s central bank as compared Bitcoin to the infamous Tulip Bubble of the 17th Century.

One thing all central banks do agree on, however, is that cryptocurrencies need regulation to protect investor assets and stabilise the market.

They are mostly concerned with preventing money laundering and other criminal activities the blockchain can facilitate.

Benoit Coeuré, for example, has warned bitcoin is unstable and linked to tax evasion.

President of Europe’s central bank, Mario Draghi declared digital currencies on the eurozone economy “posed no threat to central banks’ monopoly on money.”

Tax authorities all over the world are clamping down on cryptocurrencies by introducing regulations that ensure traders and investors of Bitcoins and the altcoin brethren are identified. Banks and other distributors of Bitcoin will apply their KYC (Know Your Customer) protocols.

Japan, one of the few countries that have legalised Bitcoin recently began assessing financial institutions to ensure their system protects consumers.

How To Hide Bitcoin From IRS?

Investors that attempt to hide Bitcoin from the IRS do so at your risk.

And it’s a pretty pointless task now the US tax agency has invested in specialist software to track transactions of BTC and other cryptocurrencies.

The IRS was prompted to instal the software in 2015 after 802 people declared BTC in their tax returns. That’s probably not an accurate figure. IRS clearly didn’t think so either.

In defence of US taxpayers, they may not have realised BTC was taxable.

They probably do now though. The new laws that came into effect on 1 January mean Bitcoin do not allow stakeholders to be anonymous anymore so IRS can easily track you down.

Therefore, the only viable way of avoiding tax, unless you qualify for nil-tax payments on earnings, is to sell you Bitcoins for cash in hand.

However, this option will only work if you can find a buyer willing to pay. If the amount is over $10,000, you will also have to declare where the money came from to your bank.

Even moving to another country will mean bitcoin holders in the US will have to declare tax on your investment.

So essentially, there is no chance of hiding your Bitcoins from the US tax man. But there are five ways of paying zero tax on BTC.

How To Pay Zero Tax On Bitcoin?

If you live in a jurisdiction that requires you to pay tax on cryptocurrencies, there may still be a way of avoiding the tax man, namely:

Invest in tax-free gold with digital tokens

Buy cryptocurrency in your ROTH IRA

Purchase an international PPLI

Move to a tax-free country

Give up US citizenship

Tip 1 – Invest In Tax-Free Gold With Bitcoin

Gold is tax-free, and because of concerns over unbacked cryptocurrencies, precious metal merchants have started offering Bitcoin investors an opportunity to swap your crypto assets for gold or invest in an ICO that is backed by gold.

Buying gold with digital assets has been made easy – as easy as purchasing precious metals with fiat currency in fact.

Gold provides a solid (pardon the pun) solution to swerve the tax man.

Tip 2 – Buy Cryptocurrency In Your ROTH IRA

Traditional IRA’s allow investors to defer tax on gains until you start to take distributions. However, if you are eligible for a ROTH IRA, the money you contribute is tax-free.

But, there’s a catch.

A ROTH IRA is only available to employees that do not receive a 401(k) matching contribution from your employer. If you’re self-employed, ROTH is an excellent solution to invest in Bitcoin as a retirement fund.

If you live in the United States, you will also need to move the IRA into an offshore bank account of a limited liability company (LLC) and set up a digital wallet to store your investment.

Tip 3 – Buy Cryptocurrency In Your Life Insurance Policy

The second option may not sound too appealing if you want to enjoy your Bitcoin profits while your alive.

The difference between offshore life insurance policies and traditional LIP’s are the latter are taxed.

Offshore PPLI’s, on the other hand, are tax efficient and passed to your heirs without having to pay inheritance tax.

However, like most “elite” investment opportunities, there’s a catch. For anyone intending to invest in an offshore PPLI has to hand over a minimum of $1.5m (sometimes $2.5m) to set up the account.

Tip 4 – Move To a Tax-Free Country

If you have the means, the skills and the qualifications to live and work abroad, you should consider moving to a country that does not charge tax on Bitcoin.

There are a handful of choices – which we have listed later on in the article.

Tip 5 – Give Up Citizenship

The final option, for citizen’s of countries like the US, that cannot escape the taxman in your home country no matter where you live, is to give up your passport and become an expatriate in another country.

Yes, we appreciate it’s a little drastic and not so easy to do. That’s why we’re sneaking it at the end of this article.

The catch with this option is you will have to qualify for citizenship in another country which typically involves you living there for at least 7 years or more, or marrying a native of that country – and somedays you might wish you’d just paid the tax!

The government in the eastern European country does not apply capital gains tax on Bitcoin, nor are cryptocurrencies considered as part of an individual’s income – unless your regular income is paid in Bitcoin.

Since 2013, businesses that trade in Bitcoin are subject to corporation tax on transactions involving digital currencies.

If Europe is too cold, and Singapore is too expensive, head to Puerto Rico.

Although part of US territory, the Central American paradise is a crypto tax haven – even for US citizens who are ordinarily subject to tax on their income worldwide.

Because Puerto Rico is not subject to US Federal Law, they are entitled to create their own tax rules and have aimed an erect middle finger towards the White House and the IRS by allowing US citizens to enjoy a tax-free life and lounge on pristine golden sands.

Are There Reduced Taxes On Bitcoin?

The amount of tax you pay on Bitcoin will typically depend on your income. However, there are economic tactics you can use to reduce the amount of tax you pay.

The best way in most countries is to hold the tokens long-term and share them with your family so you can sell them in a lower tax bracket.

Bitcoin owners in the UK may be able to take advantage of the tax exemption threshold – currently £11,330 a year.

If you withdraw £11,330 before April, and another £11,330 after the 5th April, the capital gains will fall into two separate tax years. Married couples can withdraw £45,200 without having to pay tax.

And while there are some ways to cash out your Bitcoins without paying taxes, the likelihood of that lasting once government regulations tighten is doubtful.

You can try doing it, but there’s a high chance of getting caught and probably not seeing any of your Bitcoin ever again – you might be better off sticking to paying the Bitcoin Tax the regular way.

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Megan is a self-taught blockchain enthusiast. She enjoys combining finance with technology, from a less-techy perspective. BiteMyCoin is her most recent project underneath the umbrella of an international digital marketing agency ANCHOVY.

Our mission is to guide you through the complex process of understanding cryptocurrency and Distributed Ledger Technologies in the most practical way – leaving you with a clear understanding of the market and helping you to take the first steps.

Megan was born in Poland but from a young age always sought to expand her horizons to a more cosmopolitan way of life.
At 19 she moved to the hub of tech and culture where she studied at City University in London. Keen on understanding media platforms and social interaction Megan graduated with a degree in Media and Sociology.
Looking forward Megan began to invest both her time and money into new industries and one, in particular, got her attention: Blockchain.
Megan would absorb all that she could and back in 2010 the blockchain market was more of a pipe dream than the business tycoon that it has evolved to be today.
Her young mind began to wonder where she could further her Cryptocurrency ventures and a little island in the middle of the Mediterranean seemed like the perfect spot.
While London gave her the grit and business foundation she needed, Malta was the next chapter and a flourishing island to home Blockchain.
Megan found the perfect balance with advanced finance technologies and routinely studying the market in which it lives.
BiteMyCoin is the result of Megan’s cryptocurrency passion and with every post, update and new piece the aim is to bring the reader one step closer to our future.

Zak Borg

Co-Founder

Zak takes care of the business side of things. He leads the business development and international growth of the agency. After completing his Masters of Engineering in Software Engineering for Embedded systems from Fraunhofer IESE, he teamed up with his brother Benji to set the foundation for ANCHOVY. Zak has a passion for the sea, and if he’s not at the office he’s driving his passion for long distance swimming, sailing and windsurfing.

Benji Borg

Co-Founder

After completing his degree in advanced character animation in California, he identified, together with his brother Zak, a niche in Malta’s market for a data-driven digital marketing agency – and the rest is history. A serial entrepreneur by nature, when he’s not pushing the boundaries on innovation and setting up new start-ups, Benji loves reading, observing people and enjoying the simple things in life. He’s an avid windsurfer, who has sailed semi-professionally since the age of 13 – but there’s nothing he loves more than spending time with his family, friends and his girlfriend.

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